The ONE Group Announces Second Quarter 2017 Results

August 14, 2017 05:38 PM Eastern Time

NEW YORK--(EON: Enhanced Online News)--The ONE Group Hospitality, Inc. (“The ONE Group” or the “Company”)
(NASDAQ:STKS) today announced its financial results for the second
quarter ended June 30, 2017.

Highlights for the second quarter ended June 30, 2017 were as follows:

Total GAAP revenue increased 15.5% to $19.9 million during the quarter
compared to the same period last year;

Total food and beverage sales at owned and managed units* increased
17.4% to $45.0 million during the quarter compared to the same period
last year;

Comparable sales for owned and managed STK units* increased 1.7%
during the quarter compared to the same period last year;

GAAP net loss attributable to The ONE Group Hospitality, Inc. for the
quarter was $2.3 million ($0.09 loss per share) as compared to a GAAP
net loss of $1.6 million ($0.06 loss per share) for the same period
last year;

Adjusted EBITDA** increased 34.4% to $1.5 million during the quarter
compared to the same period last year; and

Adjusted net loss*** attributable to The ONE Group Hospitality, Inc.
for the quarter was $0.6 million ($0.02 loss per share) as compared to
an adjusted net loss of $1.3 million ($0.05 loss per share) for the
same period last year.

*Total food and beverage sales at owned and managed units, a non-GAAP
measure, represents our total revenue from our owned operations as well
as the revenue reported to us with respect to sales at our managed
locations, where we earn management and incentive fees at these
locations. For a reconciliation of our GAAP revenue to total food and
beverage sales at our owned and managed units and a discussion of why we
consider it useful, see the financial information accompanying this
release.

**Adjusted EBITDA, a non-GAAP measure, represents net loss
before interest expense, provision for income taxes, depreciation and
amortization, non-cash impairment loss, deferred rent, pre-opening
expenses, non-recurring gains and losses, stock based compensation,
losses from discontinued operations and certain transactional costs. For
a reconciliation of adjusted EBITDA to the most directly comparable
financial measure presented in accordance with GAAP and a discussion of
why we consider it useful, see the financial information accompanying
this release.

*** Adjusted net loss, a non-GAAP measure, represents net loss before
loss from discontinued operations, non-recurring gains and losses,
non-cash impairment losses, stock based compensation and certain
transactional costs. For a reconciliation of adjusted net loss to the
most directly comparable financial measure presented in accordance with
GAAP and a discussion of why we consider it useful, see the financial
information accompanying this release.

Jonathan Segal, CEO of The ONE Group, noted, “We are delighted that the
shift to an asset light business model while, focusing on management and
licensing opportunities, improving sales and labor and operational
efficiencies, and reducing general and administrative costs, is really
paying off. For the second quarter in a row, we have increased same
store sales this quarter by 1.7%, increased topline revenue by 15% and
increased adjusted EBITDA by 34.4%. Additionally, we continue to become
more efficient at the corporate level by making the necessary business
changes needed to support this new strategy, which is expected to
deliver an annualized G&A savings of over $2.5 million.”

Segal continued, “In addition, the demand for our brand remains strong,
which continues to allow us to sign attractive license and management
deals. As a result, we expect to be opening two licensed STKs at the end
of 2017 and three in early 2018. We believe we are on the right track to
drive our brand forward and create long term value for our stockholders.”

Strategic Review Update

During the quarter, the Company terminated its previously-announced
process to explore and evaluate strategic alternatives, although it may
continue to evaluate opportunities as they arise. In an effort to
enhance stockholder value, the Company intends to focus on its core
business, with an emphasis on its asset light model.

Second Quarter 2017 Financial Results

Total owned unit net revenues increased 11.4% to $17.0 million in the
second quarter of 2017 compared to $15.3 million in the second quarter
of 2016. The increase was primarily due to the opening of the STK in
Orlando (May 2016) and Denver (January 2017), and was partially offset
by the closing of the STK in Washington, DC in December 2016 and a
decline in sales at the STK in Chicago, Illinois during the quarter.

Comparable sales from owned STK units increased 1.2% for the quarter,
and comparable sales from both owned and managed STK units increased
1.7% for the quarter.

Management and incentive fee revenues increased 43.2% to $2.8 million in
the second quarter of 2017 compared to $1.9 million in the second
quarter of 2016. The increase was driven by an increase in management
and incentive fees at the STK in Las Vegas and at other international
locations.

Total food and beverage sales at owned and managed units increased 17.4%
to $45.0 million compared to $38.4 million in the second quarter of 2016.

Adjusted EBITDA increased 34.4% during the quarter to $1.5 million from
$1.1 million in the second quarter of 2016.

GAAP net loss attributable to The ONE Group Hospitality, Inc. for the
quarter was $2.3 million or ($0.09 loss per share) compared to GAAP net
loss of $1.6 million ($0.06 loss per share) for the same period last
year.

Adjusted net loss for the quarter was $591,000 ($0.02 loss per share)
compared to adjusted net loss of $1.3 million ($0.05 loss per share) in
the second quarter of 2016. ***

The conference call can be accessed live over the phone by dialing
877-407-3982 or for international callers by dialing 201-493-6780. A
replay will be available after the call and can be accessed by dialing
844-512-2921 or for international callers by dialing 201-493-6780; the
passcode is 13667352. The replay will be available until September 14th,
2017.

About The ONE Group

The ONE Group (NASDAQ:STKS) is a global hospitality company that
develops and operates upscale, high-energy restaurants and lounges and
provides hospitality management services for hotels, casinos and other
high-end venues both nationally and internationally. The ONE Group’s
primary restaurant brand is STK, a modern twist on the American
steakhouse concept with locations in major metropolitan cities
throughout the U.S. and Europe. ONE Hospitality, The ONE Group’s food
and beverage hospitality services business, provides the development,
management and operations for premier restaurants and turn-key food and
beverage services within high-end hotels and casinos. Additional
information about The ONE Group can be found at www.togrp.com.

Cautionary Statement on Forward-Looking Statements

This press release includes “forward-looking statements” within the
meaning of the “safe harbor” provisions of the United States Private
Securities Litigation Reform Act of 1995. For example, the statements
related to the exploration of strategic alternatives and the potential
results therefrom and the statements related to our strategic review of
our operations targeting sources for 2017 and beyond are forward-looking.Forward-looking statements may be identified by the use of words such
as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, and
“project” and other similar expressions that predict or indicate future
events or trends or that are not statements of historical matters.A
number of factors could cause actual results or outcomes to differ
materially from those indicated by such forward-looking statements,
including but not limited to, (1) our ability to open new restaurants
and food and beverage locations in current and additional markets, grow
and manage growth profitably, maintain relationships with suppliers and
obtain adequate supply of products and retain our key employees; (2)
factors beyond our control that affect the number and timing of new
restaurant openings, including weather conditions and factors under the
control of landlords, contractors and regulatory and/or licensing
authorities; (3)in the case of our strategic review of
operations, our ability to successfully improve performance and cost,
realize the benefits of our marketing efforts, and achieve improved
results as we focus on developing new management and license deals; (4)
changes in applicable laws or regulations; (5) the possibility that the
Company may be adversely affected by other economic, business, and/or
competitive factors; and (6) other risks and uncertainties indicated
from time to time in our filings with the SEC, including our Annual
Report on Form 10-K filed on April 5, 2017.

Investors are referred to the most recent reports filed with the SEC
by The ONE Group Hospitality, Inc. Investors are cautioned not to place
undue reliance upon any forward-looking statements, which speak only as
of the date made, and we undertake no obligation to update or revise the
forward-looking statements, whether as a result of new information,
future events, or otherwise.

Results of Operations (in thousands, except share and per share
data)

The following table sets forth certain statements of operations
and comprehensive income data for the periods indicated:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2017

2016

2017

2016

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues:

Owned unit net revenues

$

17,113.8

$

15,282.7

$

35,226.8

$

29,662.6

Management and incentive fee revenue

2,784.7

1,944.0

5,098.4

3,958.0

Total revenue

19,898.5

17,226.7

40,325.2

33,620.6

Cost and expenses:

Owned operating expenses:

Food and beverage costs

4,381.2

3,778.8

9,055.2

7,307.6

Unit operating expenses

11,180.1

9,509.8

22,687.9

18,757.5

General and administrative, net

4,086.2

2,813.1

7,007.1

5,496.8

Depreciation and amortization

804.7

547.4

1,670.6

1,070.1

Pre-opening expenses

931.0

1,545.4

1,645.4

2,445.6

Lease termination expenses

-

-

28.2

-

Transaction costs

254.0

-

254.0

-

Income from equity investees

152.9

(231.2

)

107.6

(313.8

)

Derivative income

-

-

-

(100.0

)

Interest expense, net of interest income

220.2

99.3

479.2

197.5

Other expense (income), net

(130.3

)

61.8

(118.3

)

286.8

Total cost and expenses

21,880.0

18,124.4

42,816.7

35,148.0

Loss from continuing operations before

(1,981.5

)

(897.8

)

(2,491.5

)

(1,527.3

)

benefit for income taxes

Provision for income taxes

203.2

545.6

186.5

479.7

Loss from continuing operations

(2,184.7

)

(1,443.4

)

(2,678.0

)

(2,007.0

)

Loss (income) from discontinued operations, net of taxes

0.1

0.2

106.4

(1.6

)

Net loss

(2,184.8

)

(1,443.6

)

(2,784.3

)

(2,005.4

)

Less: net income (loss) attributable to

noncontrolling interest

115.6

116.7

(82.1

)

11.8

Net loss attributable to THE ONE GROUP

$

(2,300.4

)

$

(1,560.3

)

$

(2,702.2

)

$

(2,017.2

)

Amounts attributable to THE ONE GROUP:

Loss from continuing operations

$

(2,300.3

)

$

(1,560.0

)

$

(2,595.8

)

$

(2,018.8

)

Loss (income) from discontinued operations, net of taxes

0.1

0.2

106.4

(1.6

)

Net loss attributable to THE ONE GROUP

$

(2,300.4

)

$

(1,560.3

)

$

(2,702.2

)

$

(2,017.2

)

Net loss attributable to THE ONE GROUP

$

(2,300.4

)

$

(1,560.3

)

$

(2,702.2

)

$

(2,017.2

)

Other comprehensive loss

Currency translation adjustment

139.7

3.0

83.5

(18.4

)

Comprehensive loss

$

(2,160.7

)

$

(1,557.2

)

$

(2,618.7

)

$

(2,035.6

)

Net loss per share attributable to THE ONE GROUP

$

(0.09

)

$

(0.06

)

$

(0.11

)

$

(0.08

)

Shares outstanding - basic and diluted

25,144,932

24,989,560

25,098,040

25,119,992

CONSOLIDATED BALANCE SHEET

(in thousands)

June 30,

December 31,

2017

2016

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

1,540.9

$

1,597.8

Accounts receivable, net

4,515.4

4,959.8

Inventory

1,412.1

1,308.8

Other current assets

1,743.8

1,811.8

Due from related parties, net

-

415.8

Total current assets

9,212.2

10,094.0

Property & equipment, net

39,067.1

36,815.2

Investments

2,957.3

3,065.6

Deferred tax assets

-

51.0

Other assets

733.6

661.9

Security deposits

2,212.0

2,203.9

Total assets

$

54,182.2

$

52,891.6

Liabilities and Stockholders’ Equity

Current liabilities:

Cash overdraft

$

620.9

$

679.9

Long term debt, current portion

3,745.9

3,153.7

Accounts payable

6,166.0

3,761.8

Accrued expenses

6,139.7

5,549.6

Deferred license revenue

110.0

110.0

Due to related parties, net

359.3

-

Deferred revenue

403.2

612.6

Total current liabilities

17,545.0

13,867.6

Long term debt, net of current portion

11,671.3

13,167.9

Due to related parties, long-term

1,197.4

1,197.4

Deferred license revenue, long-term

1,523.4

1,109.6

Deferred rent payable

17,044.3

16,170.6

Total liabilities

48,981.4

45,513.1

Stockholders’ equity

6,005.3

8,079.6

Noncontrolling interest

(804.5

)

(701.1

)

Total stockholders’ equity including noncontrolling interest

5,200.8

7,378.5

Total Liabilities and Stockholders’ Equity

$

54,182.2

$

52,891.6

Reconciliation of Non-GAAP Measures

We prepare our financial statements in accordance with generally
accepted accounting principles (GAAP). In this press release, we also
make references to the following non-GAAP financial measures: total food
and beverage sales at owned and managed units, adjusted net income and
adjusted EBITDA.

Total food and beverage sales at owned and managed units. Total
food and beverage sales at owned and managed units represents our total
revenue from our owned operations as well as the revenue reported to us
with respect to sales at our managed locations, where we earn management
and incentive fees at these locations. We believe that this measure
represents a useful internal measure of performance as it identifies
total sales associated with our brands and hospitality services that we
provide. We believe that this measure also represents a useful internal
measure of performance. Accordingly, we include this non-GAAP measure so
that investors can review financial data that management uses in
evaluating performance, and we believe that it will assist the
investment community in assessing performance of restaurants and other
services we operate, whether or not the operation is owned by us.
However, because this measure is not determined in accordance with GAAP,
it is susceptible to varying calculations and not all companies
calculate these measures in the same manner. As a result, this measure
as presented may not be directly comparable to a similarly titled
measure presented by other companies. This non-GAAP measure is presented
as supplemental information and not as an alternative to any GAAP
measurements. The following table includes a reconciliation of our GAAP
revenue to total food and beverage sales at our owned and managed units
(in thousands):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2017

2016

2017

2016

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Owned Unit Net Revenues (a)

$

17,113.8

$

15,282.7

$

35,226.8

$

29,662.6

Management and Incentive Fee Revenue

2,784.7

1,944.0

5,098.4

3,958.0

GAAP Revenues

19,898.5

17,226.7

40,325.2

33,620.6

Food and Beverage Sales from Managed Units (a)

27,933.1

23,082.2

51,338.3

43,928.4

Total Food and Beverage sales at Owned and Managed Units

$

45,046.9

$

38,364.9

$

86,565.1

$

73,591.0

(a) Components of Total Food & Beverage Sales at Owned and Managed Units

Adjusted EBITDA. We define adjusted EBITDA as net loss before
interest expense, provision for income taxes, depreciation and
amortization, non-cash impairment loss, deferred rent, pre-opening
expenses, non-recurring gains and losses, stock based compensation,
losses from discontinued operations and certain transactional costs.
Adjusted EBITDA has been presented in this press release and is a
supplemental measure of financial performance that is not required by,
or presented in accordance with, GAAP.

We believe that adjusted EBITDA is an appropriate measure of operating
performance, as it provides a clear picture of our operating results by
eliminating certain non-cash expenses that are not reflective of the
underlying business performance. We use this metric to facilitate a
comparison of our operating performance on a consistent basis from
period to period and to analyze the factors and trends affecting our
business as well as evaluate the performance of our units. Adjusted
EBITDA has limitations as an analytical tool and our calculation thereof
may not be comparable to that reported by other companies; accordingly,
you should not consider it in isolation or as a substitute for analysis
of our results as reported under GAAP. Adjusted EBITDA is included in
this press release because it is a key metric used by management.
Additionally, adjusted EBITDA is frequently used by analysts, investors
and other interested parties to evaluate companies in our industry. We
use adjusted EBITDA, alongside other GAAP measures such as net income
(loss), to measure profitability, as a key profitability target in our
annual and other budgets, and to compare our performance against that of
peer companies. We believe that adjusted EBITDA provides useful
information facilitating operating performance comparisons from period
to period.

The following table presents a reconciliation of net income to adjusted
EBITDA for the periods indicated (in thousands):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2017

2016

2017

2016

(unaudited)

(unaudited)

(unaudited)

(unaudited)

ADJUSTED EBITDA:

Net loss attributable to THE ONE GROUP

$

(2,300.4

)

$

(1,560.2

)

$

(2,702.2

)

$

(2,017.2

)

Net income (loss) attributable to noncontrolling interest

115.6

116.6

(82.1

)

11.8

Net loss

(2,184.8

)

(1,443.6

)

(2,784.3

)

(2,005.4

)

Interest expense, net of interest income

220.2

99.4

479.2

197.5

Provision for income taxes

203.2

545.6

186.5

479.7

Depreciation and amortization

804.7

547.4

1,670.6

1,070.1

Deferred rent (1)

(15.6

)

(191.3

)

(53.2

)

(131.0

)

Pre-opening expenses

931.0

1,545.5

1,645.4

2,445.6

Lease termination expenses

-

-

28.2

-

Legal settlement costs

795.0

795.0

Equity share of legal settlement costs

269.7

269.7

Transaction costs

254.0

-

254.0

-

Loss (income) from discontinued operations

0.1

0.2

106.4

(1.6

)

Derivative income

-

-

-

(100.0

)

Stock based compensation

391.0

235.9

544.4

379.9

ADJUSTED EBITDA

1,668.5

1,339.1

3,141.7

2,334.7

Non-controlling ADJUSTED EBITDA

198.4

244.9

61.2

173.4

THE ONE GROUP ADJUSTED EBITDA

$

1,470.1

$

1,094.2

$

3,080.5

$

2,161.4

(1) Deferred rent is included in unit operating expense, on the
statement of operations and comprehensive income.

Adjusted Net Loss. We define adjusted net loss as net loss before
loss (income) from discontinued operations, non-recurring gains and
losses, non-cash impairment losses, stock based compensation, and
certain transactional costs. Adjusted net loss has been presented in
this press release and is a supplemental measure of financial
performance that is not required by, or presented in accordance with,
GAAP. Adjusted net loss has limitations as an analytical tool and our
calculation thereof may not be comparable to that reported by other
companies; accordingly, you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP.

We believe that adjusted net loss provides a picture of our operating
results by eliminating certain cash and non-cash expenses that are not
reflective of the underlying business performance. We use this metric to
facilitate a comparison of our operating performance on a consistent
basis from period to period and to analyze the factors and trends
affecting our business.

The following table presents a reconciliation of net income to adjusted
net income for the periods indicated (in thousands, except share and per
share data):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2017

2016

2017

2016

ADJUSTED NET LOSS:

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net loss attributable to THE ONE GROUP

$

(2,300.4

)

$

(1,560.2

)

$

(2,702.2

)

$

(2,017.2

)

Net income (loss) attributable to noncontrolling interest

115.6

116.6

(82.1

)

11.8

Net loss

(2,184.8

)

(1,443.6

)

(2,784.3

)

(2,005.4

)

Transaction costs

254.0

-

254.0

-

Loss (income) from discontinued operations

0.1

0.2

106.4

(1.6

)

Derivative income

-

-

-

(100.0

)

Lease termination expenses

-

-

28.2

-

Stock based compensation

391.0

235.9

544.4

379.9

Legal settlement costs

795.0

795.0

Equity share of legal settlement costs

269.7

269.7

Adjusted net loss

(474.9

)

(1,207.5

)

(786.7

)

(1,727.1

)

Non-controlling adjusted net income (loss)

115.6

116.6

(82.1

)

11.8

THE ONE GROUP adjusted net loss

$

(590.5

)

$

(1,324.1

)

$

(704.5

)

$

(1,738.9

)

Adjusted net loss per share - Basic and diluted

$

(0.02

)

$

(0.05

)

$

(0.03

)

$

(0.07

)

Shares outstanding - basic and diluted

25,144,932

24,989,560

25,098,040

25,119,992

Contacts

Investors:ICRMichelle Michalski, 646-277-1224

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